Option Investor
Newsletter

Daily Newsletter, Wednesday, 05/12/2004

HAVING TROUBLE PRINTING?
Printer friendly version
The Option Investor Newsletter                Wednesday 05-12-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Markets Slip on Oily News but Barton Biggs Bounces Them
Futures Wrap: See Note
Index Trader Wrap: See Note


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
     05-12-2004            High     Low     Volume Advance/Decline
DJIA    10045.16 + 25.69 10048.21  9852.19 2.02 bln   1439/1402
NASDAQ   1925.59 -  5.76  1927.23  1878.77 1.84 bln   1390/1687
S&P 100   537.17 +  1.17   537.30   526.53   Totals   2829/3089
S&P 500  1097.28 +  1.83  1097.55  1076.32
RUS 2000  548.99 +  0.32   549.28   534.41
DJ TRANS 2847.34 + 11.17  2850.01  2787.88
VIX        18.14 -  0.43    20.41    18.14
VXO        18.76 +  0.27    21.32    18.48
VXN        27.62 -  0.13    29.34    27.49
Total Volume 4,554M
Total UpVol  2,172M
Total DnVol  2,306M
52wk Highs      36
52wk Lows      412
TRIN          0.92
PUT/CALL      1.12
*******************************************************************

Markets Slip on Oily News but Barton Biggs Bounces Them
Linda Piazza

Despite the conjectures of one television commentator, Barton
Biggs' assertion that the markets were primed for a big bounce,
only moments before that late-day bounce occurred, did not prompt
the gains.  Here's what more reasoned thinkers believe happened.

Annotated Daily Chart of the SPX:



After a day in which the SPX had at one point lost more than 19
points; the Dow, more than 167; the Nasdaq, more than 52; and the
Russell 2000, more than 14, the bounce proved impressive,
whatever produced it.

The early losses proved just as impressive.  U.S. investors woke
to the news that June crude oil had traded above the benchmark
$40.00 level on the New York Mercantile Exchange, to its highest
level since 1988.  Although Asian markets had moved higher in the
overnight session, with the Nikkei gaining an impressive 2.26
percent after bouncing from its own 200-dma, European markets had
headed down.

To make matters worse, the International Energy Agency, the IEA,
released a report estimating that global use of fuels would rise
more than expected, at the same time saying that inventories of
crude and fuels held by the thirty member nations of the
Organization for Economic Cooperation and Development, the OECD,
fell in the first quarter.  The IEA also trimmed its estimate of
oil supply from countries outside OPEC.  Saudi Arabia has been
urging OPEC members to increase production, with OPEX ministers
to meet informally beginning March 22.  Some question whether
production can keep up with surging demand, however.  China's
growth has bumped it up to the number two oil consumer, ahead of
Japan, with the IEA concluding that China's recent measures to
cool its economy would not significantly cut its oil consumption.

Although some deemed the number less inflationary than expected,
the U.S. doesn't look ready to cut consumption, either.  The 8:30
EST release of the U.S. trade deficit revealed a 9.1 percent
widening of that deficit with imports rising faster than exports.
March sales of U.S. goods and services to other countries hit a
record $94.70 billion, growing 2.6 percent, with that figure
deemed good news for manufacturers.  What was not good news was
that all-time high in the U.S. trade deficit, rising to $45.96
billion in March against estimates of $42-43 billion, up from the
revised-higher $42.12 billion in February.  That was far less
than the 4.6 percent increase in imports to a record $140.66
billion.

Although more attention usually focuses on exports than imports
because the imports component of this number lags other measures
of domestic demand, the surging consumer goods component of the
imports growth did not go unnoticed.  That represented $2.6
billion of the increase, as Jim reported in the Market Monitor.
Also worrisome was another reason for the widening gap, the
increase in the country's petroleum deficit to $12.50 billion.

Against that background, Chicago Federal Reserve President
Michael Moskow spoke on CNBC Wednesday morning.  Responding to a
question about inflationary pressures, he termed those pressures
"transitory."  When asked about the downturn in manufacturing,
Moskow thought that downturn had been cyclical rather than
secular, although he added that the downturn had still been
painful, especially in the Midwest where manufacturing assumed
exaggerated importance.

Other market watchers might have quibbled with Moskow's market-
calming words, with one analyst quoted in a Marketwatch report
suggesting that any deficit was inflationary, whether from a
budget or a trade deficit.  Joel Naroff, an independent economic
consultant, was quoted in a separate Marketwatch report as
saying, "Dear Mr. Greenspan:  The whites of inflation's eyes are
now coming into view."

Roy Blumberg, analyst with Sterne, Agree & Leach, attributed the
early weakness to interest-rate concerns rather than those
related to the oil prices.  Blumberg commented that concerns
about interest rates, Iraq, and oil costs alternate from day to
day to pressure the markets.  He felt that the interest-rate
concerns factored highly in Wednesday's weakness, but were
overdone, and that it would take a two percent increase before
rates would dampen growth.  The effect is psychological, he
theorized, but many would argue that the markets instead are
discounting the effect of interest rates many months in the
future.

Ten-year bond yields had been dropping prior to the U.S. trade
deficit data, but steadied afterward and ended the day higher.
An auction of five-year notes showed foreign demand lower than it
had been for the last several auctions, sending bond prices lower
and yields higher.

Annotated Weekly Chart for Ten-Year Yields:



As Jim also reported in the Market Monitor Wednesday morning,
mortgage applications dropped to 742.2 from 780.0.  Homebuilders
have been reeling, with the DJUSHB, the Dow Jones US Home
Construction Index, depicting how the specter of higher interest
rates has affected the homebuilding industry.  While the SPX and
other indices hit support levels today, the DJUSHB was hitting
one of its own.

Annotated Weekly Chart of the DJUSHB:



As the DJUSHB's chart depicts, Wednesday's bounce was not
unalloyed good news, and won't be until the index moves above a
possible right-shoulder level near 628.  Until then, the index
remains in danger of rounding over into a right shoulder and then
confirming that H&S.  As the chart depicts, oscillators have
already broken through their own H&S formation, perhaps
predicting weakness ahead for this index and for stocks related
to the sector.  As always, price action will be the final guide,
while we let this oscillator action serve as a warning of what
could happen.

Even before the Barton-Biggs-inspired or SPX-inspired bounce,
hints had surfaced that a market bounce could be coming.  You've
read those hints on these pages, as writers warn of building
oversold pressure.  More specific evidence surfaced.  Early in
the trading day, I noted that the BIX, the S&P Banks Index, was
not following other indices to their tests of yesterday's lows.
Although trading minimally lower, it hovered near the top of the
previous day's range, finally breaking above Tuesday's high and
then the 200-dma.  The BIX shares some big-cap names with indices
such as the OEX, so that OEX bears were warned to watch the BIX's
behavior.  That bounce will soon bring the BIX up to a test of a
violated regression channel, however, with that test occurring at
about 334-355, and with the BIX closing at 332.50.

That bounce coupled with approaching resistance describes a
problem for many who might be examining charts after Wednesday's
close.  Many indices now head straight into presumably strong
resistance.  The SPX bounce moved it into the midpoint of the
range between the supporting 200-dma and the presumed resistance
from a broken support line at about 1112.  Two questions arise.
Will there be follow through on the late-day bounce?  Have
markets seen their lows?  Possibly, and I don't know.

Examining market breath for clues reveals that, despite the late-
day bounce, market breadth was mixed.  On the NYSE, advancing
issues beat declining issues by a moderate 17:16 ratio.  Up and
down volume was matched equally, but new lows trumped new highs
with new lows at 208 and new highs at 8.  On the Nasdaq,
advancing issues numbered fewer than declining ones, with the
adv/dec ratio at 14:17.  Down volume proved stronger, too, on
that exchange, at 1.7 times up volume.  New lows measured 100 and
new highs, 21.  That picture does nothing to clarify the forecast
for tomorrow or the next few days.

Neither does the behavior of the SOX, often a leading indicator
for the tech-related indices.  Although the SOX bounced strongly
with other indices, it did not manage a positive close.   Despite
the loss in the SOX, the Nasdaq closed higher, bouncing from near
1880, but it heads into resistance of its own and may be forming
a congestion zone between the 1880 support and the 200-dma.

Annotated Daily Chart of the Nasdaq:



The Dow's bounce sent it back above its 200-dma, but the bounce
stopped at nearest resistance, and the Dow will face resistance
again at 10,200.

Annotated Daily Chart of the Dow:



Finally, to add more fuel to the mix (pun intended), as was
mentioned in the Futures Monitor on the OIN site, the $40 price
for crude oil has served to stop every advance in crude oil
prices for more than thirty years.  Intraday crude futures
reached a high of $40.92, and closed at a 13-year high, at
$40.77, depicting crude oil prices as being at a key level.

Crude oil prices and ten-year bond yields have reached strong
resistance, zones from which they will either break out or roll
down.  Most indices bounced strongly, but remain below key
resistance, and the potential reversal signals require
confirmation from tomorrow's action.  The Dow, SPX, and COMPX all
have room to run before crashing into that next strong
resistance, allowing room for a day or several-day run higher
before they do so.  We won't know whether today's bounce was
anything more than an oversold or technical bounce, as some were
already labeling it this afternoon, until that follow through
results and then those overhead resistance levels are breached.

The Russell 2000 may provide the first peek at how that overhead
resistance will be handled, as it appears close to testing
important resistance.

Annotated Chart of the Russell 2000:



Market watchers would do well to watch crude prices, ten-year
yields, and the Russell as first indicators of market action
tomorrow. A downturn in crude prices and ten-year yields may
allow for an equity bounce to retest resistance and relieve
oversold pressure. Since the SPX's touch of the 200-dma proved so
important in today's action, that level should be watched, too.

After-hours trading saw the NDX pull back from gains made in the
late-day push.  In other after-hours news, Disney (DIS) traded
higher after its Q2 report.  Thursday's earnings reports include
tech bellwether Dell as well as BEA Systems.

Economic reports due Thursday include April's include PPI and
Core PPI, 4-week jobless claims for the week ending May 8,
April's retail sales and ex-auto retail sales, all to be released
at 8:30 EST. Although the market typically pays more attention to
the Core PPI, the prices paid component that excludes food and
energy, the inclusive PPI figure might draw some attention this
week, too, as concerns about crude oil prices have factored so
strongly in recent market declines.  Market expectations for PPI
range from a 0.3-0.5 percent gain, against March's 0.4% gain,
while estimates for Core PPI mostly center on a 0.2 percent
climb, up from March's 0.1 percent gain.   Estimates for the
initial claims number are at 325 thousand, with the previous
number at 315 thousand.


************
FUTURES WRAP
************

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


********************
INDEX TRADER SUMMARY
********************

Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_051204_1.asp



************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade Market Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

**************************************************************



************************Advertisement*************************

Stock Option and Futures Brokerage

OneStopOption teams the best trading technology with varying
levels of professional assistance at very competitive prices.
Commission costs are comparable to discount brokerage and
tailored to individual customer needs.

The power of one brokerage group with experience and expertise
in the Securities* and Futures Markets offers unprecedented
convenience for traders.

Access To All Futures Markets            Toll Free 888-281-9569
Stock Option Principals

www.OneStopOption.com

**************************************************************


*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support


The Option Investor Newsletter                Wednesday 05-12-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: LTR
Dropped Calls: None
Dropped Puts: None
Watch List: UTX, IR, CELG, IMCL


************************Advertisement*************************

Live Securities Brokerage Service with Licensed Option Principals

OCO Stop & Profit Orders                        OneStopOption
All types of Spreads and Buy Writes             888-281-9569
Auto-Trade ket Monitor Signals
Personal Service and Education


**Services available for Foreign Traders including Canada**

http://www.OneStopOption.com

**************************************************************


*****************
STOP-LOSS UPDATES
*****************

LTR - put play
Adjust from $60.01 down to $57.75.


*************
DROPPED CALLS
*************

None



************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

**************************************************************


************
DROPPED PUTS
************

None



************************Advertisement*************************

Full Service Brokers

Man Financial announces the formation of the OneStopOption
Brokerage Group, addressing the demand for personalized,
experienced service for both securities* and futures trading
within the same firm. Licensed Option Principals Andrew Aronson
and Alan Knuckman specialize in live assistance of stock*,
option* and futures traders. The combination of the proven Man
Financial global presence and the convenience of one group for
all trading needs provide customers with the tools needed for
success.

Live Broker and Online Trading Available     888-281-9569

http://www.OneStopOption.com

**************************************************************


**********
Watch List
**********

United Technologies - UTX - close: 84.49 change: +1.34

WHAT TO WATCH: There's no arguing with the strength of UTX's
rebound today, as the stock posted a strong gain on above average
volume.  But with the bearish setup on the PnF chart - with a
downside target of $75 - this looks like a setup for a bearish
entry on the next rebound failure.  With strong resistance now in
the $85-86 area, along with the 200-dma just over $86 and the 50-
dma now just over $87, targeting entries near $86 looks like the
way to go.  Clearly there will be some likely support near today's
low and then again near $80, but we're suggesting that bears can
target the $77 support level.



---

Ingersoll Rand - IR - close: 63.58 change: +1.10

WHAT TO WATCH: After Monday's break of the 200-dma, shares of IR have
battled their way back over that level in impressive fashion.  But
coming up soon is a resistance test in the $65-66 area that looks like a
lead ceiling.  With the 50-dma and 100-dma curling down near the $67
level, this looks like the place to be contemplating new bearish
positions when this oversold rebound runs out of gas.  Target entries in
the $65-66 area, set stops just over the 100-dma and target a drop back
under $60.



---

Celgene Corp. - CELG - close: 53.68 change: +1.58

WHAT TO WATCH: There was some solid bullish action in the
Biotechnology arena today and CELG made a strong showing.  After
the early dip to just above the $50 support level (and the 50-
dma), the stock rebounded strongly on heavy volume and is on the
verge of breaking its near-term resistance at $55.  Use a trade at
that level as a trigger for entry and look for a quick move back
up to its recent highs near $60.



---

Imclone Systems Inc. - IMCL - close: 70.74 change: +3.43

WHAT TO WATCH: After pulling back to and finding support near the
20-dma last week and then again earlier this week, it certainly
looked like IMCL was setting up for another bullish move.  That
suspicion was confirmed today, with the stock's strong move
through near-term resistance in the $68.50-69.00 area.  Use a
bullish entry trigger over $71 and target a continued rally
towards the late-April highs near $80.  Note that today's rally
turned the PnF chart bullish again, bringing a tentative bullish
price target of $81 along for the ride.




*******************
FREE TRIAL READERS
*******************

If you like the results you have been receiving we
would welcome you as a permanent subscriber.

The monthly subscription price is $49.95. The quarterly
price is $129.95 which is $20 off the monthly rate.

We would like to have you as a subscriber. You may
subscribe at any time but your subscription will not
start until your free trial is over.

To subscribe you may go to our website at

www.OptionInvestor.com

and click on "subscribe" to use our secure credit
card server or you may simply send an email to

 "Contact Support"

with your credit card information,(number, exp date, name)
or you may call us at 303-797-0200 and give us the
information over the phone.

You may also fax the information to: 303-797-1333


**********
DISCLAIMER
**********

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support



DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

To ensure you continue to receive email from Option Investor please add "support@optioninvestor.com"

Option Investor Inc
PO Box 630350
Littleton, CO 80163

E-Mail Format Newsletter Archives